The new stimulus package worth RM20b to provide more clarity in the economy
by NUR HANANI AZMAN / pic by BLOOMBERG
THE newly introduced Strategic Programme to Empower the People and the Economy (Pemerkasa) is expected to lend the support needed to speed up the recovery of the labour market as employers could start hiring again as a result of the anticipated better economic outlook.
A report by MIDF Amanah Investment Bank Bhd Research (MIDF Research) stated that the new stimulus package worth RM20 billion will provide a conducive business environment with more clarity in the economy.
Via Pemerkasa, the PenjanaKerjaya 2.0 programme under the Social Security Organisation has been expanded to include gig jobs for the entitlement of temporary recruitment incentives.
“The introduction of a POS-preneur financing programme by Tekun Nasional — for the purpose of repairing vehicles and purchases or vans/trucks as an income for applicants who want to venture in delivery/distribution businesses — could provide further relief to the struggling labour market,” MIDF Research said.
Extension of wage subsidy for more targeted sectors including tourism, trade wholesale and retail, gym and spa sports centre will somehow lessen the risk of unemployment which is more prevalent in these sectors amid cross-state and cross-border restrictions.
MIDF Research has also forecast that unemployment rate would average at 4.3% this year, a mild recovery from 2020 where jobless rate may approach 4% level by end of the year supported by all these measures.
The consumer sector will be a direct beneficiary given the increased cash handouts and additional support from the government to susceptible groups.
“We also expect the adjustment in standard operating procedures to give more room to boost consumer spending. Consumers who have not been able to physically shop in retail shops may be encouraged to go out and spend due to pent-up demand.
“The stimulus on top of the easing movement control is expected to improve sentiment particularly in the upcoming Hari Raya celebration in May,” the research house added.
Similarly, hotels, restaurants and cafés are also expected to recover when there are less movement restrictions.
Hong Leong Investment Bank Bhd (HLIB Research) analyst Jeremy Goh said while total headline stimulus was RM20 billion, new fiscal injection amounts to RM11 billion (0.7% of GDP), possibly under Covid-19 Fund.
He said Prime Minister Tan Sri Muhyiddin Yassin, who announced the Pemerkasa scheme on Wednesday, did not clarify how it will be financed.
Nevertheless, Goh said there is some upside from revenue estimates due to higher oil prices compared to the assumed US$42 (RM172.62) per barrel in Budget 2021.
“Assuming oil price averages US$60 per barrel, this would increase revenue by RM5.4 billion, leaving a budget deficit possibly higher at -5.8% of GDP, compared to the Ministry of Finance’s original estimate of -5.4% (2020: -6%).
“While this fiscal injection would provide some respite to businesses and consumers, the widening of fiscal deficit could cause downside risk to S&P Global Ratings’ decision on Malaysia’s credit rating, expected by end-June 2021. Currently, it has Malaysia on a negative outlook,” he said in a research note.
From a market perspective, he added that HLIB Research is upbeat that the vaccination allocation has been increased from RM3 billion to RM5 billion as it will speed up the process of achieving herd immunity from end-2021 to the first quarter of 2022.
“Coupled with the commitment to avoid another blanket MCO, this augurs well with our consensus-aligned recovery thesis.
“With Covid-19 cases subsiding since late-January — alongside vaccination rollout gaining traction (registrations jumped four-folds from end-February encompassing 23.7% of immunisation target) — we believe the recovery theme will continue to play out,” Goh said.
While most initiatives unveiled in the Pemerkasa stimulus package were driven by addressing social needs, Public Investment Bank Bhd (PublicInvest) said some of the initiatives are also somewhat growth-oriented, which is an indication that the government is now more focused on economic rehabilitation post-pandemic.
“We believe market fervour will be stronger in the second half of 2021, underpinned by strong retail participation and a gradual increase in foreign investor participation.
“Our expectations of 2021 year-end FTSE Bursa Malaysia KLCI closing remains unchanged at 1,750 points,” PublicInvest stated in its research note.
Meanwhile, the Centre for Market Education (CME) has urged the government to closely monitor the long-term effect of the several fiscal packages that have been implemented over the past year.
CME CEO Dr Carmelo Ferlito said there is a serious risk that the present or future governments may recur to tax increases once the economy recovers.
“This may become necessary to restore damaged public finances, but at the same time, tax increases could curb the recovery once on the way.
“We observe that too aggressive fiscal initiatives (taken by many governments during the last year) may also generate dangerous inflationary tendencies, which worldwide can already be seen in the dynamics of raw material prices,” he said in a statement.
Ferlito said the fiscal stimulus comes at a cost and they may produce bad unintended consequences in the medium and long run, consequences which will fall on the shoulder of future generations.
“Presently, fiscal stimulus needs to be closely monitored with a look at the long-term effects if we do not want them to be deleterious for the future development of the Malaysian economy in terms of new taxes, increased debt burden and inflation,” he said.
The Tourism, Arts and Culture Ministry has lauded the introduction of Pemerkasa and is confident with the government’s determination in revitalising the tourism and retail sector.
Its Minister Datuk Seri Nancy Shukri said when many have been vaccinated, the government is ready to gradually relax inter state travel, or even create special green lanes for cross-border travel involving air transport.
“While we are dealing with an outbreak of Covid-19, the government is always concerned in ensuring all parties in the economic chain related to the tourism sector such as accommodation, transportation, food and beverage, travel agencies and event management in the country are given attention,” she said in a statement.
Read our previous report here